Microsoft sued over performance of Azure business
A class action lawsuit filed by a Michigan pension fund claims that the company failed to tell investors the full story about the costs of its AI expansion
Microsoft is facing a class-action lawsuit from shareholders in the US, accusing it of failing to come clean about the state of its Azure business.
The lawsuit, which names several senior Microsoft officials as defendants, including chief executive Satya Nadella and chief financial officer Amy Hood, has been filed by a Michigan pension fund, the City of St Clair Shores Police and Fire Retirement System.
It alleges that Microsoft failed to give investors a full picture of Azure's performance and the financial demands of its AI expansion between May 1, 2025 and January 28 this year – the date on which Microsoft issued its Q2 results.
It reported 39% revenue growth in its Azure and other cloud businesses, down from 40% in the previous quarter, and said it expected growth of between 37% and 38% growth in the first three months of this year. And following this, around $357 billion of the company's market value was wiped out in a single day, representing the company's biggest one-day decline in nearly six years.
Microsoft invested heavily in AI infrastructure, research, and products such as Copilot, the pension fund claimed, while overstating the strength of products such as Copilot and the benefits of its partnership with OpenAI.
According to the lawsuit, the company attributed both the slowing growth of Azure and the higher spending to capacity constraints as it diverted resources to AI-related research and development and Copilot.
It failed to disclose that the Copilot family of products had experienced significant brand positioning, user experience, usage, data siloing, computational capacity, organizational, and interoperability problems, the lawsuit claimed.
The company ranked well below its competitors on a number of benchmark tests, and needed to increase its capital expenditures by billions of dollars. It also needed to divert GPU and CPU capacity away from fulfilling demand for its profitable Azure services, in order to improve the competitive positioning of its Copilot family of products and increase its AI-related research and development, the pension fund said.
"As a result, Microsoft had failed to convert a significant percentage of its commercial Microsoft 365 users to paid Copilot subscriptions and Microsoft's Copilot offerings had lost market share to rival products, a trend that was increasing," said Rosen Law Firm, which is handling the case.
"When the true details entered the market, the lawsuit claims that investors suffered damages."
Microsoft told Reuters that the claims were without merit, adding, "Microsoft stands by the integrity of its public statements and will vigorously defend itself in court".
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